Determining If An Acquisition Was a Purchase or A Pooling

In analyzing the financial statements of ABC Corp. at the end of fiscal 2005, you notice that during the year they made a major acquisition. Nowhere in the annual report does it state whether ABC used purchase or pooling-of-interests accounting for this acquisition. It made no other acquisitions during the year, and there were no disposals of any lines of business.

How would you determine whether purchase accounting or pooling-of-interests accounting had been used. Can you give three ways. Can you explain this to me fully.

Solution Preview

First, if the statements were prepared in accordance with generally accepted accounting principles (GAAP), the purchase method must have been used; FASB declared that pooling-of-interests does not conform to GAAP on April 21, 1999. (See http://www.journalofaccountancy.com/Issues/1999/Jul/financial_accounting.htm.) ...

Solution Summary

This solution discusses some of the fundamental differences between the purchase and pooling-of-interests methods of accounting. It includes a citation.